This trend looks set to continue with 94% of banks / financial institutions, and 91% VC / family office / PE investors, planning two or more fintech company acquisitions in the next 12 months alone . Incumbent financial organisations are planning to allocate at least USD 500 million to fintech investment over the next two years, which is over double what has been allocated to the sector in the past two years. This investment trend is being driven by four key dynamics:

  • Increasing globalisation
  • Elevated consumer demand
  • Tightening government regulations; and
  • Developing software infrastructure.

The combination of these factors is fuelling the rapid changes which sit at the core of the investment thesis within the global payments space. So how can payments operators and the wider financial services community continue to capitalise on this and future-proof their business?

DC Advisory’s global Financial Services experts explore >


Increasing globalisation

The fintech space has clearly benefited from globalisation in the past decade, with investment in the sector driven by a need for technological innovation to match consumers’ increasingly cross-border behaviour. Now, consumers and businesses require seamless international payment experiences, which has built the cross-border payments market up to a value of USD 22 trillion. Whilst the increase in e-commerce and travel means that consumers are more comfortable making purchases outside of their country (and now expect to switch seamlessly between currencies), 80% of cross-border payments occur within the B2B industry. For businesses, more and more companies are offering cross-border products and services. The demand for transferring payments efficiently between currencies is paramount for an effective and economically viable business model – fintech is looked to as the answer.

Notwithstanding this global trend, current investment into the payments space is localised to Europe, the UK and Germany are noted as the region’s largest financial centres, with North America positioned as a close-second. Asia and the rest of the world are fast catching up and China is highlighted as having the greatest potential for Fintech development. Additionally, India has one of the largest inward remittance industries globally (USD 68 billion as of 2017; 12% of global remittance), making it an increasingly important market for cross-border payments.

This localised trend is predominantly driven by the complexities of navigating multiple sets of domestic regulation. The winning fintech operators are therefore those who can provide a one-stop for increasingly global businesses – which is driving M&A for payments operators as organisations look to acquire local expertise to add to their existing platforms. As big businesses continue to leverage M&A to penetrate new geographies, the payments operators that service them must be able to facilitate transactions swiftly in each new location.

Convenience, efficiency and flexibility are quickly becoming the cornerstones of Western society and consumer expectation around payment solutions is no different.

Consumer demand

As mentioned above, B2C and B2B consumer demand is also driving deal flow for payments.

Consumers are now far less likely to walk into a traditional bank for day-to-day payments or services. For this reason, mobile banking and flexible payment solution providers such as Monzo, Starling and Revolut, are dominating the B2C payments industry. This trend can also be seen in India where mobile and internet transactions have grown substantially from c. 2.2 billion p.a. in 2017 to c.10 billion p.a. as of March 2019.

To keep up with this demand, merchants and large businesses are demanding new multichannel solutions to facilitate payments for their customers. Businesses are having to push the limits of traditional payments to unlock the full value of this data, as a way of increasing sales.

On the other hand, the payments industry is also being utilised by large businesses as a customer acquisition funnel for more lucrative financial products, including lending and insurance. Therefore, large players like Google (Google Pay), Walmart (Phone Pe), Amazon (Amazon Pay) and ANT Financial (Paytm) have all jumped into the fray, launching their own payment apps in India.

Despite this global consumer appetite, the movement of large technology firms into financial services, such as Facebook’s Libra cryptocurrency, poses threats for the stability of the whole global banking system. Tighter regulations are required to minimise potential risks for both B2C and B2B transactions, including those surrounding data privacy, whilst ensuring this rising consumer demand for innovative payment systems is still met.

This fintech movement is becoming problematic for the more traditional financial institutions who are typically behind with technological advancement, thus are failing to keep pace with competition from emerging Fintech disruptors and the growing consumer demand. As a solution, incumbent institutions are utilising M&A to on-board existing Fintech companies that have these exciting new solutions in place. This is cheaper, easier and less time-consuming than investing in organic growth and creating a brand new technology software arm from scratch. Simultaneously, acquisitions are also beneficial for the disruptors. These innovative companies historically have difficulty in securing customer buy-in, as well as creating a sustainable economic structure, of which traditional industries typically have already established.

For this reason, investors are looking for scalable Fintech companies that will continue to meet ever-changing consumer demands.

Although comprehensive regulatory frameworks are essential to protect consumers and the general economy, they pose several challenges for fintech providers of global payments.


Local regulatory frameworks heavily impact the payments space. To date, non-bank payment services provides (PSPs) have not been as comprehensively regulated in regard to money-laundering, terrorist financing and general cybersecurity. However, as this industry continues to grow, so does the necessity for regulation.

Disruptors often have difficulty navigating complex and varied regulatory frameworks, especially when these are cross-border in nature. This is where M&A becomes a crucial consideration – for fintech operators being acquired by a traditional financial services player, they are able to capitalise on existing knowledge and expertise, mitigating the risk of large fines, or missteps in certain territories.

In advanced economies, these regulations are increasingly complex. In the US, companies are subject to various restrictions. At a federal level, the Consumer Financial Protection Bureau has jurisdiction over payment services providers’ delivery to consumers. Additionally, the Volcker rule restricts the way that banks can invest by preventing them from involving themselves with hedge funds and private equity. This poses many challenges for businesses, because although the US payments market is perhaps one of the most lucrative, the imposing regulatory frameworks can seem daunting and appear impossible to navigate for new market operators.

Similarly, in Europe, the Payment Services Directive II and GDPR regulations aim to provide a level playing field for consumer protection and rights / obligations for payment providers, as well as heightened consumer data protection and compliance. Interestingly, fintech investment is also being driven by the need for enhanced compliance, reflecting the regulatory pressures surrounding new directives and GDPR. Notably, the two key regions for fintech investment, Europe and North America, appear to have the tightest regulatory guidelines.

More specifically in the UK, Brexit is expected to cause a shift in current regulatory frameworks. Freedom of movement is a notable concern for many fintech start-ups as they often rely on international recruitment pools for the acquisition of talent. Alternatively, Brexit has potentially positive implications for M&A, due to the decline in GDP making it cheaper for overseas buyers to buy into the UK market. Based on this, we expect M&A within the space to continue along its current trajectory, if not increase.

IT Infrastructure

In addition to regulatory frameworks driving changes in the payments investment space, the quality of IT Infrastructure is also impacting activity. Interestingly, developments in the IT Infrastructure underlying payment products and services are often determined by current legislation and regulations, so these two drivers go hand-in-hand.

Digital innovation in traditional financial institutions is often hindered by legacy IT systems. This prevents them from providing the technological advancements that consumers demand, thus losing out to disruptive new fintech start-ups. For example, cryptocurrencies are being used more frequently by disruptors due to the reduction of fees, as a result of eliminating the need for extra hardware; giving them an edge over traditional payments operators.

Some fintech companies are packaging up and selling their payments software and solutions as a product directly to traditional financial institutions. However, M&A appears to be the most effective solution for growth, because by acquiring and absorbing fintech companies, existing IT infrastructure can be evolved dynamically from within instead of having to entirely rebuild with a new and unfamiliar product.


Given the ongoing evolution of the payments sector, and the exponential capacity for future growth, we see M&A activity continuing at pace. With opportunities abound for traditional incumbents, fintech disruptors and investors, standing still is just not an option. To ensure competitive advantage:

  • Traditional incumbents need to evolve their internal business models either through organic means or through acquisition
  • Fintech disruptors should consolidate and develop their core proposition, with a focus on safe-guarding and progressing their ancillary capabilities
  • Investors backing early stage players, through early funding rounds, need to take a foothold in the sector niche or focus on investing in a more established, post profit business with a view to driving inorganic scale
  • Both traditional incumbents and fintech disruptors should also consider strategic alliances as an attractive alternative solution to both organic growth and acquisition